Assignment:
In this unit, you will be assessed on the basis of:
• the depth of your understanding of the topic and the issues involved;
• your ability to apply the theoretical concepts to explain the relationship between economic variables;
• your ability to describe and explain the effects of changes in the macroeconomic variables under consideration;
• your ability to present the material in a clear, logical and well-structured format;
• an inclusion of accurately drawn and labelled diagrams (where applicable) which are fully incorporated into the discussion;
• the quality of presentation - involving correct spelling, grammar, good writing style and neat professional presentation is expected.
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Questions 1
1. Country A is a developing country. The nominal GDP in country A (expressed in terms of country A currency) was 100 in 2018 and 200 in 2019.
Does this mean that the production in Country A doubles in 2019? Explain why/why not (give TWO reasons).
2. Explain whether deflation leads to unexpected redistribution of wealth between borrowers and lenders.
3. A new infrastructure project commenced by the state government generates 100 jobs. This would reduce unemployment by 100 (same extent as jobs created).
Explain whether you agree or disagree with this statement (give TWO reasons).
Questions 2
1. Explain the effect of an increase in imports (= an increase in marginal propensity to import) on the equilibrium GDP in the Keynesian income-expenditure model.
In your answer, carefully show the new equilibrium and explain the adjustment to the new equilibrium.
2. Carefully explain the effect of a $100 decrease in government transfers (subsidies for education, pensions etc.) on the equilibrium GDP in the Keynesian incomeexpenditure model.
In your answer, carefully show the new equilibrium and explain the adjustment to the new equilibrium.
3. Suppose the Central bank of a country issues additional money as cash (additional $100).
a. What will be the total change in money supply if all $100 are held as cash?
b. What will be the total change in money supply if all $100 are deposited in a commercial bank?
Questions 3
1. Suppose the current inflation rate is higher that the target inflation rate. Would the Central bank increase or decrease the interest rate? In your answer, explain how the Central bank makes this decision and explain the steps involved in changing the interest rate.
2. Explain the effect of an increase in exports on the equilibrium output and inflation in the AD-AS model. Carefully distinguish between the short-run and the long-run equilibrium. Would this affect the potential output? Why/Why not?
3. Explain the meaning of technology and discuss the effect of technological progress on economic growth.
In your answer, carefully explain the effect on real GDP, real GDP per capita and average labour productivity.